How Identity Verification will Build Trust and Compliance for Cryptocurrency Exchanges

With its growing popularity, financial investors and government entities are becoming increasingly interested with the transactional volume taking place with cryptocurrency. Experts in the field state that Bitcoin, for example, has risen in value over this last year to over 1000% against the dollar. Furthermore, many exchanges are now dealing with transactions between cryptocurrency and fiat money. This phenomenon is causing a call for cryptocurrency regulation which aims to disrupt financial crimes and money laundering in that space.


Initially, nefarious characters were drawn to the cryptocurrency market because they believed their transactions were anonymous. This is a false understanding of the system though. Cryptocurrency transactions are pseudonymous, which means that sending and receiving cryptocurrency occurs under a pseudonym. If this pseudonym is ever traced to a person’s identity, then all their cryptocurrency transactions can be linked back to them.


In the United States, talk of cryptocurrency regulation is on the rise. Exchange platforms in the country are being mandated to comply with anti-money laundering (AML) and know your customer (KYC) regulations. The point of these regulations is to prevent money laundering from terrorism, drugs and other nefarious purposes with cryptocurrency.


Another goal of US regulation is for exchanges to establish customer identification programs. These programs should obtain customer identification information to prove that a customer is who they say they are during the onboarding process with an exchange. The programs should also create and maintain a record of the information obtained during account set up and determine after a certain degree of time whether the customer is suspected of fraudulent financial activity based on their interactions within the exchange.


As the call for cryptocurrency regulation continues to rise, some exchanges are taking a proactive approach. To them, compliance is inevitable, so they are making an effort to increase compliance with government regulations. Ensuring that their customers are legitimate and not partaking in criminal activities will allow them to showcase the legitimacy of their businesses and cryptocurrency as a whole.


At IDMERIT, we offer progressive solutions to assist cryptocurrency exchanges looking to increase compliance with government regulations. We offer an ecosystem of ID verification that starts with Identity Verification across more than 90 countries. With IDMVerify, exchanges can confirm the identity of prospective customers in official databases in the country of origin. This creates a frictionless onboarding environment for compliant users of the exchange and provides some assurance that the customer is legitimate.


If an account applicant can’t be verified in the official databases from their country of origin, friction is increased. The exchange can move the applicant to a step-up process called IDMScan where the applicant is prompted to use their digital device (phone or computer) to capture a photo of their identification document (passport or license) that can be digitally analyzed for authenticity, and a live selfie that can be used to biometrically compare the document photo to the selfie. This process takes very little time, and it builds trust in cryptocurrency exchanges as they work to comply with AML and KYC regulations to create a fraud-free crypto marketplace.

Alex McGinness
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